Here is an excerpt from an article written by Stefan Ferber for Harvard Business Review and the HBR Blog Network. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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Currently in the business world we are witnessing something like the epic collision of two galaxies — a rapid convergence of two very unlike systems that will cause the elements of both to realign. It’s all thanks to the Internet of Things.

If you are not familiar with the term, the Internet of Things and Services refers to a dramatic development in the internet’s function: the fact that, even more than among people, it now enables communication among physical objects. By 2015, according to my own firm’s projections, not only will 75 percent of the world’s population have access to the internet. So will some six billion devices. The fact that there will be a global system of interconnected computer networks, sensors, actuators, and devices all using the internet protocol holds so much potential to change our lives that it is often referred to as the internet’s next generation.

For managers, this development creates challenges both long-term and urgent. They need to envision the valuable new offerings that become possible when the physical world is merged with the virtual world and potentially every physical object can be both intelligent and networked. And, starting now, they must create the organizations and web-based business models that can turn these ideas into reality.

As consumers, we have all had a glimpse of how the relationship between buyer and seller changes when devices are connected to the internet. Nobody these days carries a Sony Walkman and cassettes; instead we carry Apple iPods — and our major access point for music has become the online iTunes Store, also by Apple. The company sells the devices and the music, profiting handsomely from both. In the same way, industrial product buyers are seeing their relationship to equipment manufacturers changed by smart, connected things. In the field of mechanical and plant engineering, consider the advent of predictive maintenance. When a machine is fitted with sensors, it can know what condition it is in and, whenever necessary, initiate its own maintenance.

Clearly, when things are networked, that has an impact on how actual value is produced. In many cases, it is no longer the industrially manufactured product that is the focus, but rather the web-based service that users access through that device. So, for example, we see the Daimler Groupinvesting in mobility services such as car2go, myTaxi, and moovel; GE using what it prefers to call the “Industrial Internet” for mechanical and plant engineering services; LG paving the way to “smart homes” with IP-enabled televisions and home appliances and related services.

A study undertaken by researchers from the Institute of Technology Management at the University of St. Gallen in Switzerland (Service Business Development: Strategies for Value Creation in Manufacturing Firms) concludes that these services are most definitely lucrative for traditional manufacturers. Considering the example of a papermaking machine, they note that the sale of the machine itself generates a margin of around one to three percent, while selling a related service yields five to ten times as much. The ratio is much the same for the sale of rail cars versus related mobility and maintenance services.

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To read the complete article, please click here.

According to Ferber, “I am the Director for Communities & Partner Networks in the Internet of Things and Services at Bosch Software Innovations. I have more than twenty years experience in software development, software processes, software product lines and software architectures for embedded, computer vision and IT domains. Since 2009 I was the Product Manager for the Bosch eMobility Solution and therefore engaged internationally in the eMobility market, business models, standardization, and technology topics in Europe, Asia, and Australia. I hold a Ph.D. and a diploma degree in Computer Science from the University of Karlsruhe, Germany and a MSc. in Computer Science from the University of Massachusetts Dartmouth, USA.”